Boot and Gain Recognition Flashcards
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Read the first 7 Boot and Gain Recognition flashcards as text
In a 1031 exchange, the term 'boot' refers to:
Answer: Non-like-kind property, cash, or net debt relief received in the exchange
Boot is any non-like-kind property, cash, or net debt relief received by the taxpayer, and its receipt triggers gain recognition.
A taxpayer relinquishes a property with a $500,000 mortgage and acquires replacement property encumbered by only a $400,000 mortgage. The $100,000 difference is best described as:
Answer: Mortgage boot (net debt relief) treated as boot
When the taxpayer is relieved of more debt than assumed on replacement property, the net debt relief ($100,000) is treated as mortgage boot subject to gain recognition.
The amount of gain recognized in a partially tax-deferred 1031 exchange equals:
Answer: The lesser of the boot received or the total realized gain
Recognized gain is capped at the lesser of the boot received or total realized gain, ensuring a taxpayer cannot recognize more than was actually gained.
Which of the following is the clearest example of 'cash boot' in a 1031 exchange?
Answer: Receiving cash proceeds that are disbursed to the taxpayer rather than reinvested
Cash boot occurs when actual cash is returned to or received by the taxpayer instead of being reinvested through the qualified intermediary into replacement property.
Which of the following costs are treated as exchange expenses that reduce boot and taxable gain?
Answer: Selling commissions and transactional closing costs paid at settlement
Selling commissions, title insurance, escrow fees, and other closing costs directly associated with the exchange reduce the amount realized and offset boot.
A taxpayer has a realized gain of $200,000 and receives $75,000 in boot. How much gain must the taxpayer recognize?
Answer: $75,000
Recognized gain equals the lesser of boot received ($75,000) or realized gain ($200,000), so only $75,000 is recognized and $125,000 remains deferred.
If a taxpayer receives furniture and appliances (personal property) as part of an otherwise qualifying real estate exchange, how is that personal property treated?
Answer: As boot subject to gain recognition equal to its fair market value
Non-like-kind personal property received constitutes boot, and its fair market value is included in boot subject to gain recognition under IRC §1031.